Quiz 1 and 2 investmen in equity PDF

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Quiz 1 Turbo Company bought 2,000 shares of Miguel Company on January 2, 2019 at P150 per share and paid P2,250 as brokerage fee and P1, non-refundable tax. At the time of acquisition, Turbo designated the equity security at fair value to other comprehensive income. Prior to the date of acquisition,...

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Quiz 1 1. Turbo Company bought 2,000 shares of Miguel Company on January 2, 2019 at P150 per share and paid P2,250 as brokerage fee and P1,500 nonrefundable tax. At the time of acquisition, Turbo designated the equity security at fair value to other comprehensive income. Prior to the date of acquisition, information revealed that on December 31, 2018, Miguel Company declared a P10 cash dividend to shareholders on record as of January 31, 2019 payable on April 30, 2019. There were no other transactions in 2019 involving the investments in Miguel Company.

What is the historical cost of the investment account? Acquisition Cost (2,000 shares x P150 ) 300,000 Add; Transaction Costs 3,750 Less: Dividend On (2,000 x P10) 20,000 Historical cost 283,750

P

P

2. On January 2, 2019, Lotus Company purchased 8,000 shares of Pearl Co. at P100 per share and designated the equity at fair value to other comprehensive income. Brokerage fees of P24,000 and tax of P4,000 were paid on the same date. On July 31, 2014, Lotus Company received a 10% share dividend. Assuming Lotus investment in Pearl has a total market value of P900,000 as of December 31, 2019, what amount of unrealized gain should be shown in the other comprehensive income? Current Fair Value Less: Historical Costs Unrealized Gain

P 900,000 828,000 72,000

3. On December 31, 2019, Tandem Company acquired 5,000 ordinary shares P120 par and designated at fair value to other comprehensive income of Thermal Company. Tandem Company settled the shares by exchanging its equipment with a carrying value of P900,000 but currently has a market value of P800,000. Shares of Thermal Company are not actively traded in the market and its market value cannot be reliably determined. At what amount should the investment in equity be recorded? P800,000 4. On September 30, 2019, Pilgrims exchanged equipment for 2,500 of Theme Company's ordinary share. On that date, the equipment had a carrying value of P250,000 and its fair market value was not clearly

determinable. The par value of Theme's share was P80 per share but its market value on September 30, 2019 is P90 per share. What is the cost of investment? Shares acquired

2,500

X Market Value of shares Market Value of shares

P 90 P225,000

5. On September 30, 2019, Pilgrims exchanged equipment for 2,500 of Theme Company's ordinary share. On that date, the equipment had a carrying value of P250,000 and its fair market value was not clearly determinable. The par value of Theme's share was P80 per share but its market value on September 30, 2019 is P90 per share. What is the amount of gain or loss on the disposal of the equipment? Exchange Price

(2,500 shares x P90 )

Less: Carrying Amount Loss on exchange 25,000

P 225,000 250,000 P

6. Guess Company purchased 50,000 shares (5% ownership) of Fortune Company on January 2, 2019. Guess received a share dividend of 15% on March 31, 2019 when the market price of the share is P40. On November 30, Guess paid P20 per share special assessment on the shares. On December 15, 2019, Fortune paid a cash dividend of P8 per share. In the December 31, 2019 statement of comprehensive income of Guess Company, what amount should be reported as dividend income? Number of shares purchased Add: Share dividend (50,000 x 15%) Total Shares X Dividend Per Share Dividend Income 460,000

50,000 7,500 57,500 P 8,00 P

7. Threshold Company purchased 20,000 shares out of 200,000 shares outstanding of Power Company's ordinary shares on February 14, 2019 for P924,000. Threshold Company's designated the equity at fair value to other comprehensive income. Threshold Company received a P40,000 cash dividend on Power Company on July 1, 2019. Power declared a 10% share dividend on December 1, 2019 to shareholders of record as of December 31, 2019. The dividend was distributed on January 31, 2020. The market price of the shares was P38 on December 1, 2019, P40 on December 31, 2019 and P42 on January 31, 2020.

What amount should Threshold record as dividend income for the year ended December 31, 2019? Cash dividend P 40,000 8. Threshold Company purchased 20,000 shares out of 200,000 shares outstanding of Power Company's ordinary shares on February 14, 2019 for P924,000. Threshold Company's designated the equity at fair value to other comprehensive income. Threshold Company received a P40,000 cash dividend on Power Company on July 1, 2019. Power declared a 10% share dividend on December 1, 2019 to shareholders of record as of December 31, 2019. The dividend was distributed on January 31, 2020. The market price of the shares was P38 on December 1, 2019, P40 on December 31, 2019 and P42 on January 31, 2020. What amount should Threshold Company report the investment in its 2019 statement of financial position? Shares Acquired Share dividend (20,000 x 10%) Total Shares Held Market Value of Investment Fair Value of Investments

20,000 2,000 22,000 P40 P880,000

9. Comfort Company purchased 10,000 shares of Abel ordinary shares at P90 per share on January 2, 2019. On December 31, 2019, Comfort received 2,000 shares of Abel ordinary share in lieu of cash dividend of P10 per share. On this date, the Abel ordinary share has a quoted market price of P60 per share. In its 2019 statement of comprehensive income, how much should Comfort report as dividend income? Number of shares X Fair Market Value Dividend Income

2,000 60 P 120,000

10. Kite Company acquired 4,000 shares of Sky Corporation ordinary shares on November 1, 2018 at a cost of P440,000. Sky Company designate the investment at fair value to other comprehensive income. On January 2, 2019, Sky distributed a 10% ordinary share dividend. On November 30, Kite Company received a cash dividend of P10 per share. On December 31, 2019, Sky Company shares are selling at P110 per share. If the shares are to be sold to Kite Company will have to incur P5,000 transaction cost. On January 31, 2020, Kite sold 2,400 shares of its Sky shares for P276,000 and incurred transaction cost of P3,000. For the year ended December 31, 2019, what amount of dividend income should the company recognized? Number of Shares Acquired

4,000

Shares Dividend

400

Total shares

4,400

X Dividend per share Dividend Income

P 10 P 44,000

11. Kite Company acquired 4,000 shares of Sky Corporation ordinary shares on November 1, 2018 at a cost of P440,000. Sky Company designate the investment at fair value to other comprehensive income. On January 2, 2019, Sky distributed a 10% ordinary share dividend. On November 30, Kite Company received a cash dividend of P10 per share. On December 31, 2019, Sky Company shares are selling at P110 per share. If the shares are to be sold to Kite Company will have to incur P5,000 transaction cost. On January 31, 2020, Kite sold 2,400 shares of its Sky shares for P276,000 and incurred transaction cost of P3,000. What amount of unrealized gain should the company that would presented in other comprehensive income on December 31, 2019? Fair Value (4,400 shares x P110) Less: Historical Costs Unrealized Gain

P 484,000 440,000 P 44,000

12. Kite Company acquired 4,000 shares of Sky Corporation ordinary shares on November 1, 2018 at a cost of P440,000. Sky Company designate the investment at fair value to other comprehensive income. On January 2, 2019, Sky distributed a 10% ordinary share dividend. On November 30, Kite Company received a cash dividend of P10 per share. On December 31, 2019, Sky Company shares are selling at P110 per share. If the shares are to be sold to Kite Company will have to incur P5,000 transaction cost. On January 31, 2020, Kite sold 2,400 shares of its Sky shares for P276,000 and incurred transaction cost of P3,000. What amount of gain or loss on the sale of the security should the company recognize? Net Selling Price (P276,000 – 3,000) Less: Carrying Value (2,400 x P110)

P 273.000 264,000

Gain on Sales 9,000 13. World Company owns 10,000 ordinary shares of Nuke Company, which has hundred thousand shares publicly traded. World Company purchased these 10,000 shares in 2019 for P120 per share. World Company irrevocable designated the equity shares at fair value to other comprehensive income. On October 31,2019, World Company received P20 per share from Nuke as cash dividend. On December 30, 2019 World Company sold 6,000 shares of Nuke Company for P126 per share which is equal to the prevailing market price of

Nuke Company and incurred P10,000 transaction cost. As a result of the disposal, World Company has decided to reclassify the equity investment from fair value to other comprehensive income to fair value to profit or loss. What amount of gain from sale should the company recognize? Selling Price (6,000 shares x P126 – P10,000) Carrying Value (6,000 shares x P120)

P 746,000 720,000

Gain on Sale P26,000 14. World Company owns 10,000 ordinary shares of Nuke Company, which has hundred thousand shares publicly traded. World Company purchased these 10,000 shares in 2019 for P120 per share. World Company irrevocable designated the equity shares at fair value to other comprehensive income. On October 31,2019, World Company received P20 per share from Nuke as cash dividend. On December 30, 2019 World Company sold 6,000 shares of Nuke Company for P126 per share which is equal to the prevailing market price of Nuke Company and incurred P10,000 transaction cost. As a result of the disposal, World Company has decided to reclassify the equity investment from fair value to other comprehensive income to fair value to profit or loss. What amount of gain or loss on transfer should the company recognize as a result of transfer from fair value to other comprehensive income to fair value to profit or loss? NONE – prohibited to transfer 15. World Company owns 10,000 ordinary shares of Nuke Company, which has hundred thousand shares publicly traded. World Company purchased these 10,000 shares in 2019 for P120 per share. World Company irrevocable designated the equity shares at fair value to other comprehensive income. On October 31,2019, World Company received P20 per share from Nuke as cash dividend. On December 30, 2019 World Company sold 6,000 shares of Nuke Company for P126 per share which is equal to the prevailing market price of Nuke Company and incurred P10,000 transaction cost. As a result of the disposal, World Company has decided to reclassify the equity investment from fair value to other comprehensive income to fair value to profit or loss. How much is the carrying amount of investment on December 31, 2019? 4,000 shares x P126 = P504,000

Quiz 2 1. Anchor Company acquired the following portfolio of investment through profit or loss securities during 2019 and reported the following balances at December 31, 2019:

Security Value

Cost

A

Fair Market

350,000

360,000

B

425,000

400,000

S

525,000

640,000

No sales occurred during 2019. What is the carrying value of the securities on December 31, 2019 on anchor's statement of financial position? Total of Fair Market Value P 1,400,000 2. How much is the unrealized gain or loss on December 31, that would presented to profit or loss? Fair Market Value

P 1,400,000

Less: Costs

1,300,000

Unrealized Gain

P 100,000

3. Master Company acquired the following portfolio of equities through profit or loss during 2019 and reported the following balances at December 31, 2019: Securities C

Cost 300,000

Market Value 280,000

B

360,000

370,000

N

500,000

460,000

No sales occurred during 2019. What is the carrying value of the securities on December 31, 2019 on Master's financial position? Fair Market Value

P 1,110,000

4. How much is the unrealized gain or loss? Fair Market Value

P 1,110,000

Historical Costs

1,160,000

Unrealized Loss

P 50,000

5. Cordial Company purchased the following portfolio equity securities through profit or loss during 2019 and reported the following balances at December 31, 2019. No sales occurred during 2019. All declines are considered temporary. Security Market Value

Cost

G

800,000

M 1,320,000

1,400,000

820,000

A

320,000

280,000

How much should Cordial Company reported as unrealized loss related to the securities transactions in its 2019 profit or loss? Fair Market Value

P 2,420,000

Historical Costs

2,520,000

Unrealized Loss 100,000

P

6. Fortune Company purchased the following portfolio of equity securities through profit or loss during 2019 and reported the following balances at December 31, 2019.No Sales occurred during 2019.All declines are considered to be temporary. Securities

Cost

Market

Value A 205,000

200,000

B

350,000

330,000 C

280,000

270,000 How much should Fortune Company reported as unrealized loss related to the securities transactions in its 2019 profit or loss? Fair Market Value

P 805,000

Historical Costs

830,000

Unrealized Loss

P

25,000 7. Primary Company purchased the following portfolio of equity securities through profit or loss during 2019 and reported the following balances at December 31, 2019. No sales occurred during 2019. Security Market Value M 390,000

Cost 400,000

N

600,000

O

500,000

630,000 540,000 How much should Primary Company report as unrealized gain or loss related to the securities transactions in its 2019 profit or loss? Fair Market Value 1,560,000

P

Historical Costs 1,500,000 Unrealized Gain

P

60,000 8. National Company began business in February 2019. During the year, National Company purchased the three equity securities through profit or loss listed below. In its December 31, 2019 statement of financial position, National Company appropriately reported a P40,000 debit balance in its "Fair Value Adjustments" - account. There was no change during 2020 in the composition of National Company's portfolio of equity securities. Pertinent data are as follows: Security Market Value

Cost

C 1,260,000

1,200,000

N

900,000

950,000 D

1,600,000

1,620,000 What amount of gain on these securities should be included in National Company's profit or loss for the year ended December 31, 2020? Fair Market Value 12/31 3,830,000

P

Historical Costs (3,700,000 + 40,000) 3,740,000 Unrealized Gain P 90,000 9. Morgan Company began business in February 14, 2019. During the year, Morgan purchased a portfolio or investment in profit or loss equity securities. In its December 31, 2019 statement of financial position, Morgan appropriately reported a P100,000 credit balance in its "Fair Value

Adjustments account. There was no change in during 2020 in the composition of Morgan's portfolio of equity securities to profit or loss. Pertinent data are as follows: Securities

Cost

Market

Value P

2,400,000

2,250,000 Q

2,500,000

2,350,000 R

1,900,000

1,800,000 What amount of unrealized loss on these securities should be included in Morgan's profit or loss for the year ended December 31, 2020? Fair Market Value

P 6,400,000

Fair Market Value (6,800,000 – 100,000) Unrealized Loss 300,000

6,700,000 P

10. On November 1, 2019, Ribbon Company invested P600,000 in equity securities representing 20,000 ordinary shares of Carbon Company. The investment was classified as equity security to profit or loss since the company intends to sell the security for a short-term for profit. On December 15, 2019, this investment has a market value of P580,000. On January 15, 2020, Ribbon Company sold the investment for P630,000. What amount of realized gain should Ribbon company recognize on the disposal of the trading security? Selling Price P630,000 Market Value 580,000 Realized Gain 50,000

P

11. During 2019, Hong Kong Bank purchased marketable equity securities as a short-term investment in equity to profit or loss. The cost and market value at December 31, 2019 were as follows: Security Market Value

Shares

Cost

X

200

84,000

Y

2,000

430,000

102,000 459,000 Z

4,000

945,000

885,000

Hong Kong Bank sold the investment in Security Y on March 9, 2020 for p250 per share. How much should Hong Kong Bank report as realized gain on the sale? Selling Price (2,000 shares x P250)

P 500,000

Market Value of Security Y

459,000

Gain on Sale 41,000

P

12. How much should Hong Kong Bank report as carrying amount of investment in December 31, 2020 assume there's no changes in the fair market value?

Security X - Fair Market Value

P 102,000

Security Z – Fair Market Value

885,000

Carrying Value

P 987,000

The following information related to Trust Company for 2019: Realized gain on sale of investment

P 40,000

Unrealized gain arising from change of FMV to P/L

120,000

What amount of other comprehensive income should Trust Company presented in its statement of comprehensive income? 13.

The following information related to Trust Company for 2019: Realized gain on sale of investment

40,000 Unrealized gain arising from change of FMV to P/L 120,000 14. What amount of other comprehensive income should Trust Company presented in its statement of comprehensive income? 0

P

What amount of unrealized / realized gain should Trust Company presented in its statement of profit or loss? P 160,000 15. Information regarding ABC Bank portfolio of equity securities to profit or loss as follows: Aggregate Cost, December 31, 2019 3,000,000

P

Unrealized gains, December 31, 2019 90,000 Unrealized losses, December 31, 2019 (300,000) Net realized gains during 2019 350,000 If the company has an accounting policy of offsetting unrealized gains and losses with realized gains and losses on their investments amount of net realized gain should the company report in their statement of comprehensive income? Unrealized Losses 300,000 )

(P

Unrealized Gains 90,000 Net Realized Losses 210,000)

(P

Net Realized Gains 350,000 Net Realized Gains 140,000

P...